Deductions from Damages: Collateral Benefits

AuthorJamie Cassels
1) The Issue Explained
Closely related to the issues of mitigation and “avoided loss” is the
subject of collateral benef‌its. This subject arises whenever a plaintiff’s
loss (as a result of breach of contract or tort) is apparently ameliorated
by a payment from a third party (or “collateral source”). The question
is whether that payment should be taken i nto account in calculating
the plaintiff ’s loss, thus reducing the damages payable by the defendant.
Collateral benef‌its problems ari se in many contexts in civi l litiga-
tion. For example, in wrongful dism issal and personal injury c ases, the
plaintiff may receive employment insurance, welfare, or other assist-
ance that cushions the wage loss. In pe rsonal injury cases, t he plaintiff’s
actual expenses for the cost of care and income losses may frequently
be paid for by insurance or offset by income or benef‌its in kind from
a variety of sources. Public health-care benef‌its will frequently cover
many of the plaintif f’s medical expenses. Family members and charit-
able institutions may provide care to t he plaintiff free of charge. The
plaintiff ’s wage loss may be defrayed, partly or in whole, by disabil-
ity insurance, an employer’s wage continuation plan, or a benevolent
fund. In every cas e, the question is whether the benef‌its received by the
plaintiff cancel the loss suffered.
Deductions from Da mages: Collateral Benef‌it s 481
2) Framework for Analysis
The tension over collateral benef‌its is acute. On the one hand, to p ermit
the plaintiff to cl aim a loss or expense th at is not actually incurred (or
which is offset from another source) appears to overcompensate the
plaintiff. For example, a person who is injured but continues to receive
his salar y from a disability fund w ill receive a “windfall” or “double
compensation” if he is also perm itted to claim lost income from the
defendant. On the other hand, to exclude such losse s from the plain-
tiff ’s claim gives to t he defendant the benef‌it of the program, essentially
“subsidizing” the defendant’s negligence. For those who believe that tort
law should play a deterrent role by charging wrongdoers w ith the full
costs of their activities, such a subsidy undermines the social purpose
of the law.
The law regarding collateral benef‌its is always evolving, and the
questions raised l argely involve policy considerations. The “fundamen-
tal” policy of tort is compensation of the plaintiff, not punishment of
the defendant, and from this perspective, a failure to deduct collateral
benef‌its amounts to double compensation or a windfall to the plaintiff.
In Ratych v Bloomer,1 McLachlin J st ated:
The function al rational [sic] for the award of damages adopted in t he
trilogy of A ndrews, Thornton a nd Ten o underlines t he necessity of
using the plai ntiff’s actual los s as the basis of hi s or her damages.
The award is justif‌ied , not because it is appropriate to puni sh the de-
fendant or enrich the pl aintiff, but because it w ill serve the pur pose
or function of restor ing the plaintiff a s nearly as possible to hi s pre-
accident state or alternat ively, where this cannot be done, providing
substitutes for what he lost.
The trilogy follows the mo dern trend in the law of damage s away
from a punitive approach which empha sizes the wrong t he tortfea-
sor has committed. The l ink between the moral culp ability of the
tortfeasor and h is obligation to pay damages to the pers on he injures
is frequently tenuous in our t echnological and mechanical er a. A mo-
ment’s inattention is all t hat is required to tr igger astronomical da m-
ages. The risks in herent in such activities as the use of our h ighways
by motorists are i ncreasingly recogni zed as a general social bu rden.
In this context, t he maxim that compen sation must be fair to both
the plaintif f and the defendant seems emi nently reasonable . . . . Th at
1 [1990] 1 SCR 940 [Ratych].
fairnes s is best achieved by avoiding bot h undercompensation and
overcompens ation.2
Thus, an emphasis on “compensation” indicates a general rule of
deductibility. As McLachlin J concluded, it is implicit in the compen-
sation principle that the “plaint iff should not recover unless he can
demonstrate a loss, and then only to the extent of that loss.”3 Double
recovery violates thi s principle. While this may seem to provide a bene-
f‌it to the defendant, this concern i s attenuated by the widespread use
of liability insur ance, since often it will be the third-pa rty insurer who
will be bea ring the costs and not the defendant personally. Also per-
suasive is the point that McLachlin J makes concerning the problem
with assign ing moral culpability to certai n negligent actions commen-
surate with their often catastrophic results. With powerful m achines
(and complex science) comes the potential for great harm even when
reasonable care is t aken to prevent it.
However, tort law is often stated to have a deterrence function as
well. Under the deterrence theory, tortfeasors should bear the full cost
of their wrongdoing. This is said to provide incentive s for those en-
gaged in potentially har mful or dangerous activities to t ake into ac-
count the full societal costs of those activities. On thi s basis, collateral
benef‌its should not be deducted from damages awards, si nce deduction
would mean the benef‌it would inure to the defendant who would other-
wise be required to pay the full cost of the wrongdoing. And in addi-
tion to deterrence, many f‌ind it disturbing that the wrongdoer should
get “credit” for payments made to her victim. These notions were ar-
ticulated by Cory J in Cunningham v Wheeler:4 “Tort recovery is based
on some wrongdoing. It makes little sense for a wrongdoer to benef‌it
from the private act of forethought and sacrif‌ice of the plaintif f.5 Thus,
a plaintiff may end up recoveri ng more than her actual loss even if a
court disapproves of this outcome.6
On this view, non-deductibility furthers the principles of deter-
rence and avoids the moral dilemma of giv ing the wrongdoer the bene-
f‌it of payments intended for the plaintif f. It is said that the existence
of liability insur ance signif‌icantly undermines the deterrence rationale
of tort law (since damage awards are paid by insurers, not by wrong-
doers); however, as Calabresi has argued, even with insurance, tort l aw
2 Ibid at 963 [emphasis in or iginal].
3 Ibid at 981.
4 [1994] 1 SCR 359 [Cunning ham].
5 Ibid at 4 01.
6 See Zacharias v L eys (2005), 36 CCLT (3d) 93 at para 40 (BCCA), Southin JA.

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